SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended October 31, 1996
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 13(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _______________________ TO ______________________
COMMISSION FILE NUMBER 33-73406.
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IVC INDUSTRIES, INC.
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(exact name of small business issuer as specified in its charter)
DELAWARE 22-1567481
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(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
500 HALLS MILL ROAD, FREEHOLD, NEW JERSEY 07728
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (908) 308-3000
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NOT APPLICABLE
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(former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
Registrant had 17,094,742 shares of common stock outstanding as of December 13,
1996.
1
<PAGE>
IVC INDUSTRIES, INC.
Table of Contents
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
October 31, 1996 and July 31, 1996.................................. 3
Consolidated Statements of Income
For the Three Months Ended October 31, 1996 and 1995................ 4
Consolidated Statements of Cash Flows
For the Three Months Ended October 31, 1996 and 1995................ 5
Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation.. 6
Part II. Other Information................................................... 10
Signature Page............................................................... 11
2
<PAGE>
Item 1. Financial Statements.
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT
(Dollars in Thousands, Except Share Information)
--------------------------
<TABLE>
<CAPTION>
October 31, July 31,
1996 1996
----------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 810 $ 420
Accounts receivable 15,888 14,947
Inventories 25,351 26,045
Deferred taxes 1,755 1,755
Prepaid expenses and other current assets 2,285 1,864
-------- --------
Total Current Assets 46,089 45,031
Property and Equipment - Net 17,994 18,071
Deferred Taxes 105 105
Other Assets 2,854 2,908
-------- --------
Total Assets $ 67,042 $ 66,115
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $ 1,341 $ 1,070
Accounts payable and accrued expenses 22,388 21,249
-------- --------
Total Current Liabilities 23,729 22,319
Long Term Debt - Less Current Portion 27,305 28,656
Other 99 99
-------- --------
Total Liabilities 51,133 51,074
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Shareholders' Equity:
Preferred stock, no par value, 2,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value, 25,000,000 shares authorized;
17,094,742 issued and outstanding 171 171
Additional paid-in capital 11,345 11,345
Foreign currency translation adjustment (103) (99)
Retained earnings 4,496 3,624
-------- --------
Total Shareholders' Equity 15,909 15,041
-------- --------
Total Liabilities and Shareholders' Equity $ 67,042 $ 66,115
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(Dollars in Thousands, Except Per Share Information)
(unaudited)
--------------------------
1996 1995
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Net sales $ 31,563 $ 24,486
Cost of sales 23,468 18,994
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Gross profit 8,095 5,492
Selling, general and administrative expenses 6,212 4,264
Merger and integration costs -- 156
----------- -----------
Income from operations 1,883 1,072
Other expenses - net 431 86
----------- -----------
Income before income taxes 1,452 986
Income tax provision 580 407
----------- -----------
Net income $ 872 $ 579
=========== ===========
Net income per share $ .05 $ .03
=========== ===========
Weighted average shares 17,177,872 17,212,227
=========== ===========
See accompanying notes to consolidated financial statements.
4
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(Dollars in Thousands, Except Per Share Information)
(unaudited)
--------------------------
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 872 $ 579
-------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 529 443
Deferred income taxes -- 32
Changes in assets - (increase) decrease:
Accounts receivable (941) (1,455)
Inventories 694 (3,402)
Prepaid expenses and other current assets (421) 265
Other assets 54 241
Increases in liabilities:
Accounts payable and accrued expenses 1,139 2,196
Other -- 1
-------- --------
Total adjustments 1,054 (1,679)
-------- --------
Net Cash Provided (Used In) By Operating Activities 1,926 (1,100)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Foreign currency translation adjustment (4) 4
Additions to property and equipment (452) (502)
-------- --------
Net Cash (Used In) By Investment Activities (456) (498)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments - notes payable - bank -- (13,287)
Proceeds from notes payable - banks -- 14,431
Principal payments on long term debt (15,558) (5,052)
Proceeds from long term debt 14,478 6,000
-------- --------
Net Cash Provided (Used) By Financing Activities (1,080) 2,092
-------- --------
NET INCREASE IN CASH 390 494
CASH AND CASH EQUIVALENTS - BEGINNING 420 529
-------- --------
CASH AND CASH EQUIVALENTS - ENDING $ 810 $ 1,023
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 365 $ 300
======== ========
Taxes $ 415 $ 7
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------
Note 1 - Basis of Presentation and Other Matters:
The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. Financial data for the period ended October
31, 1995 reflects the retroactive effect of the business combination, accounted
for as a pooling of interests with Hall Laboratories, Inc. ("Hall") on April 30,
1996. These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and the footnotes thereto
contained in the IVC Industries, Inc. (the "Company") Annual Report on Form
10-KSB for the year ended July 31, 1996, as filed with the Securities and
Exchange Commission.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year.
Certain amounts have been reclassified to conform with the current period
presentation.
Note 2 - Inventories:
Inventories consist of the following:
October 31, July 31,
1996 1996
----------- -----------
(dollars in thousands)
Finished Goods $ 9,974 $ 10,736
Bulk 7,158 9,155
Work in Process 1,644 1,777
Raw Materials 4,527 2,450
Packaging Components 1,120 1,927
----------- -----------
Total Inventory $ 25,351 $ 26,045
=========== ===========
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Three Months Ended October 31, 1996 Compared to the Three Months Ended October
31, 1995
Net Sales. Net sales for the three months ended October 31, 1996 were $31.6
million, an increase of $7.1 million or approximately 29% over the three months
ended October 31, 1995. The increase in net sales during the quarter was
attributed to the continued growth in unit sales primarily to the Company's
chain drug and mass merchandising customers and new product introductions, such
as the Company's new line of herbal products. The Company also benefited from
the initial sales contribution of Intergel, its new soft gelatin encapsulation
division, which commenced operations in January 1996. The Company's core
business products are distributed through leading chain drug, supermarket and
mass merchandising retailers. The current consolidation trend amongst these
retailers poses additional opportunities, as well as challenges, in the future.
The Company believes that, based on its relationships with its retail customers,
it is well positioned to participate in the industry's future growth. However,
there can be no assurance that the Company's current growth rates will continue,
nor what effect, if any, continued consolidation amongst the Company's retail
customers will have on the Company.
Cost and Expenses. Cost of sales for the three months ended October 31,
1996 were $23.5 million, an increase of $4.5 million or approximately 23.6% over
the three months ended October 31, 1995. Cost of sales decreased 3.2% as a
percentage of net sales over the comparative period in the prior year. Such
decrease as a percentage of sales was due to: (i) an improvement in the overall
sales mix towards higher margin products such as the Company's Fields of Nature
brand and the new herbal product line, (ii) a general decrease in the Company's
manufacturing costs resulting from the improvement in manufacturing efficiencies
stemming from higher volume in the Company's tablet manufacturing divisions
where longer production runs coupled with larger batch sizes enabled the Company
to attain lower packaging and manufacturing costs on a per unit basis, (iii)
lower acquisition costs of certain raw materials, attributable, in part, to the
increased purchasing power of the Company as a result of the merger will Hall,
and (iv) the reduction in net sales attributable to the Company's contract
manufacturing division (which was sold in December 1995), whose products were
generally sold at lower profit margins. The overall decrease in cost of sales,
as a percentage of net sales, was achieved in spite of the impact of the costs
associated with Intergel's initial operations. Intergel's operations commenced
in January 1996, and have only recently reached operating levels which allow for
a positive gross profit contribution. The Company is presently negotiating an
agreement with the union representing Intergel's production and maintenance
employees. It is not known what effect, if any, this agreement will have on
Intergel's future cost of operations.
7
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended October 31, 1996 were $6.2
million, an increase of $1.9 million or approximately 46% over the prior year's
comparable period. This increase was primarily attributable to: (i) increased
advertising and promotional activities, (ii) increases in sales commission,
broker fees and other selling expenses attributable to the sales growth in the
Company's core operations, (iii) increased distribution expenses attributable to
higher levels of shipments associated with the Company's core operations and
Intergel's sales activities, and (iv) expenses relating to the initial
operations of the Intergel division. The Company's Revlon line of vitamins,
which experienced disappointingly low sales levels, contributed to the increased
advertising and promotional costs, as well as royalty payments during the three
months ended October 31, 1996. These increases in selling, general and
administrative costs were partially offset by the savings resulting from the
coordination of certain sales, marketing, distribution and general and
administrative functions between the East Coast and West Coast operations,
subsequent to the Hall merger in April 1996.
Merger and Integration Costs. Merger and integration costs for the three
months ended October 31, 1995 were $156,000 and represent transaction costs
associated with the merger with Hall.
Other Expenses, Net. Other expenses, net, for the three months ended
October 31, 1996, principally represent interest expense of $394,000, rental
income of $73,000, interest income of $27,000 and miscellaneous expenses,
including equipment and other asset dispositions, of $137,000. Other expenses,
net, for the three months ended October 31, 1995, principally represent interest
expense of $316,000, rental income of $57,000, interest income of $22,000 and
miscellaneous income, including exchange gains, equipment and other asset
dispositions, of $150,000.
Income Taxes. Income taxes generally reflect the effect of statutory
federal and state income tax rates and certain non-deductible expenses.
Liquidity and Capital Resources
As the Company's business has grown its working capital needs, primarily
related to accounts receivable, inventory, costs associated with securing
long-term sales contracts, startup of Intergel's operations and higher levels of
capital expenditures, have been satisfied by cash flow generated from operations
and bank borrowings.
Cash flow from operations for the three months ended October 31, 1996 was
$1.9 million. Accounts receivable at October 31, 1996 increased by $0.9 million
from July 31, 1996. Inventories and accounts payable and accrued expenses
provided $0.7 million and $1.1 million, respectively, during the three months
ended October 31, 1996. These cash flows were attributable to the increased
sales for the quarter ended October 31, 1996.
8
<PAGE>
In September 1996, the Company entered into a capital lease agreement that
provides for up to an additional $1 million for acquisitions of computer and
manufacturing equipment. This lease calls for monthly payments of principal and
interest at prime rate over a five year period. At October 31, 1996, the Company
had $453,000 available for future equipment purchases.
On April 30, 1996, the Company entered into a credit agreement with its
bank, which expires on March 31, 1999. The agreement can be extended under
certain circumstances through August 31, 1999. Under the agreement, the Company
is allowed to borrow up to $15.0 million under borrowing Facility A, and $6.5
million under borrowing Facility B, subject to certain borrowing base
limitations, as defined therein. Borrowings under Facility A bear interest at
either the bank's prime rate plus .50%, or at money market rates or LIBOR plus
2.25% (7.94% at October 31,1996), at the Company's option. Borrowings under
Facility B bear interest at the bank's prime rate, or at money market rates or
LIBOR plus .50% (6.19% at October 31, 1996), at the Company's option. The
agreement has a commitment fee of .375% of the average daily unused portion of
the overall borrowing commitment relative to Facility A, and .25% relative to
Facility B. The amount of borrowings allowable under Facility B are subject to
semi-annual adjustments, based upon purchases from a vendor during the preceding
twelve months. The notes are collateralized by substantially all of the
Company's assets. The agreement with the bank requires the Company to maintain
certain financial ratios, minimum working capital and contains various
restrictions customary in such a financial agreement, including limitations on
capital expenditures and payment of cash dividends.
"Safe Harbor" Statement
When used in this document, the words "believe", "anticipate", "think",
"intend", "will be" and similar expressions identify forward-looking statements.
In addition, other statements that provide more than historical information may
be deemed to constitute forward-looking statements. There are important factors
that could cause results to differ materially from those anticipated by these
forward-looking statements. These factors include risks and uncertainties such
as, among other things, beneficial or adverse trends in the domestic market for
vitamins and nutritional supplements, the gain or loss of significant customers
for the Company's products, the competitive environment in the vitamin and
nutritional supplement industry, and the enactment or promulgation of new
government legislation or regulation, as well as other risks and uncertainties
that may be detailed from time to time in IVC's reports filed with the
Securities and Exchange Commission.
9
<PAGE>
Part II. Other Information
Item 1. - Legal Proceedings
Not applicable
Item 2. - Changes in Securities
Not applicable
Item 3. - Defaults upon Senior Securities
Not applicable
Item 4. - Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. - Other Information
Not applicable
Item 6. - Exhibits and Reports on Form 8-K
Reports on Form 8-K:
None
Exhibits:
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 13, 1996 By: /s/ Arthur S. Edell
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President
Dated: December 13, 1996 By: /s/ I. Alan Hirschfeld
------------------- ------------------------------
Executive Vice President and
Acting Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 1st Quarter
10-QSB and is qualified in it's entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 810
<SECURITIES> 0
<RECEIVABLES> 15,888
<ALLOWANCES> 0
<INVENTORY> 25,351
<CURRENT-ASSETS> 46,089
<PP&E> 17,994
<DEPRECIATION> 0
<TOTAL-ASSETS> 67,042
<CURRENT-LIABILITIES> 23,729
<BONDS> 27,305
0
0
<COMMON> 171
<OTHER-SE> 15,738
<TOTAL-LIABILITY-AND-EQUITY> 67,042
<SALES> 31,563
<TOTAL-REVENUES> 31,563
<CGS> 23,468
<TOTAL-COSTS> 23,468
<OTHER-EXPENSES> 431
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,452
<INCOME-TAX> 580
<INCOME-CONTINUING> 872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 872
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
